15 Jan 07
Taxpayer denied partnership loss - Brown

The AAT has held that the taxpayer was not entitled to a deduction for an amount claimed to be his share of a partnership loss because the AAT was not satisfied that the taxpayer ever was a member of a partnership. The purported business of the partnership was the acquisition of "warrants" for legal services of the type described in Corporate Business Centres International Pty Ltd v FCT (2004) 137 FCR 108. The AAT also rejected the taxpayer's alternative argument that he was entitled to the deduction claimed on the basis that he was operating as a "sole trader".

However, the AAT held that the Commissioner was not entitled to impose a penalty on the taxpayer for an incorrect return. Although the taxpayer lodged an original return claiming the deduction, he subsequently lodged an amended return in which the claim for the deduction was omitted. The amended return was lodged before any assessment was issued by the Commissioner. Notwithstanding the lodgment of the amended return, the Commissioner purported to issue an assessment in accordance with the original return and then issued an amended assessment denying the deduction and imposing the penalty for incorrect return. In upholding the taxpayer's objection to the penalty , the AAT said:

"144. At the outset of the hearing I raised the matter of the respondent [Commissioner] having assessed in this way but what I there described as a curiosity was never explained. I am left to conclude only that the respondent consciously assessed in that way in order to create a tax shortfall.

145. In those circumstances the tax shortfall did not result from a false or misleading statement by the applicant [taxpayer], it resulted from the respondent assessing on the basis of facts no longer put forward. Put another way, any falsity or inarguable position had been corrected before it had been acted upon."